Payroll Reporting
Employer's & Reporting Requirements
If you are an employer, regardless of the type of business structure you are operating under (sole trader, company, partnership or charity), you will likely be captured by HMRC payroll reporting requirements.
It is important to note that payroll periods for HMRC purposes run from the 6th of one month to the 5th of the next.
All amounts due to HMRC must be paid by the 22nd following the end of the tax month.
This reporting system is called the RTI system which is short for Real Time Information.
Real Time Information (RTI)
Real Time Information (RTI) was a key government programme which aims to improve the way in which employers submit Pay As you Earn (PAYE) information about their employees to HM Revenue & Customs (HMRC).
RTI requires employers to send HMRC details of employees’ payments and deductions in ‘real time’ (at or before each payment).
Under PAYE Real Time Information (RTI), employers and pension providers are required to tell HMRC in their Full Payment Submission (FPS) about Income tax, National Insurance contributions (NICs) and other payroll deductions they make, when, or before the payments to their employees or pensioners are made – the so-called ‘on-or-before’ reporting rule.
Types of Payroll Reports Under RTI
FPS (Full Payment Submission)
This to be sent on or before each payday, and informs HMRC about the payments and deductions for each employee.
An FPS contains:
- employer registration details (PAYE reference, Accounts Office reference.);
- personal identifiable details for each employee (name, address, National Insurance Number, date of birth, gender);
- employment details for each employee (directorship, starter information, leaver information, etc.);
- year to date figures for each employee (Income Tax, National Insurance contributions,
- Student Loan deductions, pension contributions, statutory pay); and
- figures for the relevant period for each
employee (payment date, gross pay, indication of unpaid absence).
EPS (Employers Payment Summary)
An employer payment submission is used to report values to HMRC that cannot be included on the full payment submission (FPS). These values can affect the payments you make to HMRC on a monthly or quarterly basis.
An EPS should only be submitted in the following circumstances:
- If no payments to employees are made within the current or past pay period meaning no FPS has been submitted;
- to declare a future period of inactivity;
- to recover statutory payments (statutory sick pay, statutory paternity pay, statutory maternity pay, statutory adoption pay are such examples);
- to recover Construction Industry Scheme deductions suffered;
- to indicate that you have made your final submission for the year and
- to claim Employment Allowance.
An EPS must be submitted to HMRC by the 19th of the following tax month to apply any reduction on what you will owe from your FPS. after relief provided against statutory payments the employer has made employees. Generally 90% relief is given on statutory payments made to employees.
Other Required Payroll Reports
P60
You must give all employees a P60 at the end of each tax year, This must be issued to your employees by the 31st May following the end of the tax year.
Most payroll software packages will produce these at the end of a tax year. They can then be distributed to employees in paper format or electronically.
This summarises how much the employee has been paid during the previous tax year and how much has been deducted at source and remitted to HMRC. This is a very useful document to have if you have a sole trader business or property business in addition to being employed and need to fill out a income tax self assessment return.
P11D
Form P11D is a document used to tell HMRC about the non salary employment benefits you have provided your employees such as company cars ,medical insurance and interest free loans. This must be submitted to HMRC by the 6th of July following the end of the tax year. A copy of the P11D should also be provided to the employees covered by the P11D.
If a benefit provided to an employee in included in the regular payroll, it does not need to be disclosed in a form P11D. This is often the case with most benefits with the exception of the following:
(1) low or interest free loans and
(2) provision of living accommodation.
Employers need to pay class 1A national insurance on these benefits. This will be calculated as part of the payroll process for a tax period for benefits included within the payroll. Class 1A national insurance due on any benefits not included within the payroll and included on the form P11D must be paid by the 22nd following the end of the tax year.
Employees only pay income tax on benefits in kind and not national insurance. This is normally deducted at source if the benefit is on the payroll or recovered by HMRC by amending your PAYE code if not on the payroll.
P45
A P45 is an official certificate that your should give to your employee when you terminate their employment with you. It will have a number of details on the document including:
- Tax code
- Gross pay
- The amount of tax you have paid for the year
- Employer details
This document will then be passed onto the employees new employer after they have left your employment.
A P45 comes in 4 parts. Part 1 is reported to HMRC, parts 2 and 3 are to be provided by the leaving employee to their new employer. Part 4 is for the employee to keep for their own records.
Most payroll software will have the capability of generating a P45 once a leaver has been registered as having left the employer.
PAYE Settlement Agreements (PSA)
A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees. You as an employer incur the expense and the national insurance payable on the benefits/expenses covered is known as class 1B.
If you would like to apply for a PSA, you must follow the following steps:
- Write to HM Revenue and Customs (HMRC) Business Tax and Customs describing the expenses and benefits you want the PAYE Settlement Agreement (PSA) to cover.
- Once HMRC have agreed on what can be included, they will send you 2 draft copies of form P626. Sign and return both copies. HMRC will authorise your request and send back a form - this is your PSA.
- You will need to report anything that cannot be included separately using form P11D. You do not need to send a P11D if you’re paying employees’ expenses and benefits through your payroll.
- Complete and submit the online form to tell HMRC how much you will need to pay in tax and national insurance. If you do not, HMRC will calculate the amount. You will be charged more if this happens.
- HMRC will get in touch with you before 19 October following the tax year that the PSA covers, to confirm the total tax and National Insurance you need to pay.
Anything included on a PSA does not need to be included on a P11D, form part of the regular payroll process or have class 1A national insurance employers contributions payable on them.
Any tax and class 1B national insurance should be paid to HMRC by the 22nd October following the end of the tax year.
Payment Of PAYE Liabilities To HMRC
The PAYE amount due for a tax period should be remitted to HMRC by the 22nd of the month following the end of the tax period. - this is the case If you are an employer paying HMRC monthly or quarterly.
The PAYE amount payable will include the following elements:
- Employee Income Tax deductions
- Class 1 and 1B National Insurance
- Class 1A National Insurance on termination awards and sporting testimonials
- Student Loan repayments
- Construction Industry Scheme (CIS) deductions
- Apprenticeship Levy payments (starting from April 2017) if you, or employers you’re connected to, have an annual pay bill of more than £3 million
This only covers PAYE arising from the regular payroll process.
Employers class 1A national insurance on non payrolled benefits in kind should be paid to HMRC by the 22nd of July following the end of the tax year. Payment of tax and national insurance on items covered by a PSA must be made by the 22nd of October following the end of the tax year.
Annual Payroll Reporting Tasks To Be Aware Of
As an employer, you will have to run a number of tasks near the end of one tax y ear and the beginning of the next:
- Send your final payroll report of the year on or before your employees’ payday (FPS and EPS)
- Update employee payroll records from 6 April
- Update payroll software from 6 April, or earlier if the software provider asks you to
- Give your employees a P60 by 31 May
- Report employee expenses and benefits by 6 July (P11D)